FRAX is a dollar pegged stablecoin issued by the Frax protocol.
FRAX the stablecoin and Frax the protocol share the same name, but the former is written in all caps to show that its a specific asset.
A stablecoin is a crypto token that holds its value against a reference peg. In this case, FRAX aims to hold its value against the US dollar. There are many flavors of stablecoins like USDT, USDC, DAI and LUSD that use different collateral and peg keeping mechanisms to maintain a $1 peg.
Crypto markets are volatile and prices for assets like ETH and BTC can move a lot on a daily basis. Stablecoins on the other hand should always be worth the value of the reference asset, which for FRAX is the US dollar.
The main question at hand for all dollar stablecoins is how do they return $1 worth of collateral when they are redeemed?
Redeeming $1 worth of value is done through a variety of processes and can be broken down into a few different categories: collateral type, reserves, peg mechanism, oracle pricing info and reference peg.
The largest stablecoins like USDC and USDT use Fiat aka cash + equivalents as collateral held in banks and other investment vehicles. These entities are secure, relatively easy to audit, and often comes with deposit insurance, but they also are centralized and can
FRAX was created during a time when stablecoin options were limited, speculative and flimsy in architecture .
DAI was the primary stablecoin issuer, but it was over-collateralized by ETH. Every $1 of new DAI issued required $1.50 of collateral. The system was self limited by the amount of ETH available. There was no way to grow beyond the confines of ETH’s value. DAI later switched to a multi-collateral system and is now mostly backed by USDC.